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Most Cardholders Are Always Carrying Credit Card Debt

According to a recent report from the Federal Reserve Bank of Boston, most Americans who have a credit card are constantly carrying debt from one month to the next.

The report, entitled “Consumer Revolving Credit and Debt over the Life Cycle and Business Cycle,” analyzed 5% of all U.S. credit report accounts from 2000 to 2014 to determine how Americans’ relationship with credit cards changes over time.

They found only 35% of credit cardholders aged 25 to 50 pay off their balances each month. The overwhelming majority, known as “revolvers,” carry a balance every month. Carrying such balances generally results in paying high interest charges.

For most Americans, this borrowing begins between the ages of 20 and 30. During this time, credit card limits increase about 450% and debt rises 300%.

Credit cards can become a substitute for savings for young people.

“People in their 20s don’t seem to save much,” said Scott Fulford, a Boston College professor who wrote the study with Scott Schuh, director of the Boston Fed’s Consumer Payments Research Center. “Well, maybe they’re not saving very much because the way they’re ‘saving’ is just by getting higher credit limits. That provides the funds for emergencies that they need,” Fulford said.

Even as Americans age, they still rely on their credits cards. The average 20-year-old is using more than half of their available credit, and 50-year-olds use about 40%.

Once cardholders do reach the age of 50, credit card borrowing tapers, but 45% of 70-year-olds carry a balance each month. Even the typical 80-year-old carries a $600 balance. The study concludes “the median person is always borrowing, although at the end of life she is not borrowing much.”

The study also showed most Americans are apt to charge more in good economic climates than recessions. The reason is that spending does not seem influenced by the economy. Instead, borrowing seems to be driven by credit limits. When banks offer consumers higher limits, they use it, and banks are always adjusting how much credit they give cardholders. From 2000 to 2008, the average credit card limit rose 40%, then decreased 40% in 2009, the most recent recession.

Revolvers are most affected by credit increases. When these cardholders are offered a 10% credit limit increase, their debt increases by 9.99%. This study indicates most Americans are inclined to use every penny their credit card issuer offers.

About Bill Hardekopf

Bill Hardekopf is the CEO of LowCards.com and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.

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Editorial Note: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author's alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer affiliate program. See the online application for details about terms and conditions for these offers. Every reasonable effort has been made to maintain accurate information, however all credit card information is presented without warranty. After you click on an offer you will be directed to the credit card issuer's web site where you can review the terms and conditions for your offer.

Advertiser Disclosure: LowCards.com is an independent, for-profit web site. LowCards.com participates in the Affiliate Network, and receives compensation from most of the credit card issuers whose offers appear on the site. This compensation helps support our website and enables us to write insightful articles to help you manage your credit card accounts. This compensation, as well as the likelihood of applicants' credit approval and our own proprietary website guidelines, may impact how and where the cards appear on our site.

LowCards.com does not include all credit card companies or every available credit card offer. Opinions expressed here are author's alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. Every reasonable effort has been made to maintain accurate information, however credit card offers change frequently. After you click on an offer you will be directed to the credit card issuer's secure web site where you can review the terms and conditions for your offer.